Politically Exposed Person Meaning [Offshore Banking]

In this article, we’re exploring what is a “politically exposed person”, meaning an individual with influence and authority in government.

Not surprisingly, PEPs are defined differently by different regulators and financial institutions. So, we will also discuss how different countries assess PEPs, including examples of India and the United States.

Lastly, PEPs face greater challenges than most client groups when opening international accounts as individuals in foreign countries, so we will discuss these challenges as well.

This article is part of our free series on opening an offshore bank account for non-residents and foreigners, which you can access using the link above.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

  1. Politically Exposed Person Meaning
  2. Who Is a Politically Exposed Person?
  3. Frequently Asked Questions
  4. Do You Want Help Opening Bank Accounts?

Politically Exposed Person Meaning

Politically exposed person, meaning an individual in a position of power and influence within their respective government, is considered high-risk in banking and financial services. This risk assessment is due to the increased potential for politically exposed persons (PEPs) to be involved in illegal activities, including money laundering, corruption, tax evasion, and bribery. 

Interestingly, there is not a single definition of a PEPs within the international regulatory community. However, each regulatory body and financial institution roughly defines them in the same way.

Generally speaking, there are two broad categories to consider when looking at PEPs. These categories include Domestic PEPs and Foreign PEPs.

What is a Domestic PEP?

A domestic politically exposed person, meaning someone who is considered a PEP and is looking to bank in their home country is often treated differently than a foreign politically exposed person.

This is because many countries, like the United States, do not have specific guidelines for dealing with domestic persons, only foreigners. That said, individual financial institutions may implement their own procedures in addition to the official guidelines.

What Is a Foreign PEP?

A foreign politically exposed person, meaning someone who is considered a PEP in their home country and is looking to bank abroad is treated with additional scrutiny and enhanced due diligence. Importantly, foreign PEPs also include those individuals who hold prominent positions within state-owned enterprises in foreign countries.

In fact, foreign PEPs often struggle to find banks that are willing to open bank accounts for them. This is because the ongoing due diligence and compliance requirements of maintaining accounts for PEPs is often more costly than the potential profit that a financial institution can earn from keeping them as a client.

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Politically Exposed Persons (PEP Lists)

Politically exposed person databases (PEP Lists) are available from a range of private companies, offering to financial institutions real-time monitoring of existing clients, assessment of prospective clients, and more. That said, each of the available resources approaches data collection a bit differently and presents their assessment of risk for politically exposed persons differently as well.

That said, there is a general consensus around many of the roles that are on PEP lists. These roles include elected politicians, members of the judicial branch, senior officers in the military, central bankers, senior bureaucrats, executives of state-owned enterprises, ambassadors, and more.

Examples of Politically Exposed Persons (PEPs)

  • Elected politicians
  • Members of the judicial branch
  • Senior officers in the military
  • Central bankers
  • Senior bureaucrats
  • Executives of state-owned enterprises
  • Ambassadors
  • And more

As mentioned, each country will assess politically exposed persons in its own way, and financial institutions will use this guidance as a foundation for how they assess prospective and current clients. With this in mind, here is an example of how India defines PEPs.

Who Is a Politically Exposed Person in India?

In India, a politically exposed person is anyone who is in a position of influence or authority in any division of the government, including politicians, senior bureaucrats, senior military officers, and members of the judicial branch. Importantly, this label also extends to the family members and close associates of these individuals as well.

Frequently Asked Questions

Below are a few of the most common questions we receive from people looking into the meaning of a politically exposed person. If you have further questions you would like to ask our team, don’t hesitate to get in touch.

What Are the Different Types of PEPs?

The different types of PEPs will depend on which jurisdiction you are assessing. For example, while many countries review domestic PEPs and foreign PEPs separately, other countries (like the United States) only recognize foreign PEPs. Likewise, the specific guidance and risk assessment for PEPs will vary based on which risk-based assessment model a country’s regulations impose, and the specific approach taken by each financial institution.

What Is an Example of a Politically Exposed Person?

An example of a politically exposed person is someone who holds a position in government, such as a minister, congressman, or head of state. Additionally, individuals who are close relatives to these government officials, like children, parents, siblings, and spouses are also examples of PEPs.

How Do You Check if a Person is a PEP?

You can check if a person is a PEP (politically exposed person) by assessing their personal relationships. This involves close family such as a spouse, children, siblings, parents, aunts and uncles. In fact, individuals who are loosely connected to a person may also result in someone being considered politically exposed. There are various paid databases that allow financial institutions and commercial entities to run PEP checks.

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GlobalBanks Team
GlobalBanks Team

The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

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